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Chris Stoddard on Tiebout’s Local Expenditure Theory

Charles M. Tiebout was an economist who wrote extensively about economic theories but his largest contribution to the field of economics was when he wrote his “A Pure Theory of Local Expenditures” in 1956. Although it is definitely difficult if not impossible to summarize Tiebout’s theories, Chris Stoddard was able to explain at least the most important aspects of Tiebout’s theories through his online article entitled “Charles M. Tiebout: A Pure Theory of LocalExpenditures,1956 By Chris Stoddard.”

Chris Stoddard starts off by explaining what local governments face when dealing with free riders, people who enjoy the benefits or goods of a community without earning the right to, or without contributing to the production of such goods and services. When local governments are faced with high concentrations of free riders, local government expenditure would obviously rise since free riders do not openly help produce or contribute to the community’s welfare. They are just there to maximize the benefits they can get from a specific community.

Mr. Tiebout’s theories then commented on something that can possibly alleviate the free rider problem – voting by feet. Voting by feet basically means people freely choose the communities where they want to live by commuting or migrating from one community to the next, finding the perfect local government system that can provide them with the needs they deem more important than others. If local governments can offer different fruit baskets (services) with varying prices (tax rates), people can choose to move from one local government or community to the next in order to get their money’s worth. With voting by feet, as revealed in Chris Stoddard’s article, people have the option to choose the communities that can best serve their interest and hopefully, the communities they choose can expect something from them in return.

Chris Stoddard was able to point out that Mr. Tiebout’s theories have a couple of assumptions. First, is that people can easily commute from one local government to the next. This means that people are mobile and that there is no or almost no cost for moving. Another assumption, is that there are no spillovers from other communities, meaning communities who produce more service than the others, do not transfer these services to other local government systems. This, in turn, makes giving public services more expensive as more people receive such services.

Although Mr. Tiebout’s paper was a purely theoretical piece, as Chris Stoddard stated in his article, it served as good economic wake up call to local government systems insisting that a political move is needed to solve an economic issue. It showed that decentralized government units offering various services as varying prices can act as regular markets that help lessen if not solve some of the more common problems or issues of society today such as the elevated numbers of free riders. It is interesting to note that Mr. Tiebout’s paper was written in 1956 and after more than half a century, his theories are still able to stand the test of time.

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